January 28, 2014

Thoughts on the SEC’s Coming Disclosure Reform: A Starting Point

I have more than ten cents on this topic – so I will roll out my thoughts in a series of blogs. This first one deals with how this project should start out. As drafters of disclosure, we tend to be focused on the endgame first – how to change the existing disclosure requirements.

But to make this project useful, I think it’s better to pretend that we are operating with a clean slate. What if there were no disclosure requirements yet? So we would be adopting them for the first time. In my mind, these would be the three issues that should be dealt with in that scenario – these are similar to the 4 issues identified in the SEC’s recent Regulation S-K study:

1. What would investors like to made aware of about a company before they invest (or as existing investors deciding whether to sell)?
2. How should investors be made aware that disclosure has been made? Or in what ways should companies “deliver” that disclosure (ie. make it available)?
3. In what ways should companies “file” their disclosure so that investors can rest assured that it really is the company that made the disclosure? And perhaps this is also necessary for liability purposes?

If these are the three issues that should be considered from the outset, the length of a disclosure document really doesn’t come into play except as a consequence of the higher level decisions that are made. And perhaps as a function of #2 above if there are concerns about nuggets being buried. Given that a tweet of 140 characters might well have more influence on a company’s stock price than a Form 10-K – and the fact that few investors read disclosure documents linearly – I do think a primary focus on document length is misguided (although I also don’t believe the impact on stock price is the true measure of a disclosure’s value – but it is a factor). Let me know what you think. I’ll dig deeper in future posts…

Disclosure Reform: SEC Commissioner Gallagher Weighs In

Recently, SEC Commissioner Gallagher delivered this speech on disclosure reform. His thoughts seem to be:

– Do disclosure reform in pieces rather than try to overhaul it all at once
– Eliminate non-material disclosure requirements
– Reduce # of Form 8-K triggering events
– Reduce redundancy by providing guidance when disclosure is not needed
– Streamline proxies & registration statements with more incorporation by reference
– More data tagging like XBRL
– Use of core filing for one-time disclosures
– Only provide significant interpretive guidance from Commission level, not Corp Fin

Reg Flex Act: CEO/CFO Certifications Under Review for Smaller Companies

Last week, the SEC published a list of rules required to be reviewed 10 years after their adoption for their impact on smaller companies in accordance with the Regulatory Flexibility Act. This list includes rules from 2002, so you have CEO/CFO certifications under Section 302 of Sarbanes-Oxley and mandated EDGAR for foreign private issuers on the review list. Comments can be submitted within 30 days after publication in the Federal Register…

Webcast: “Alan Dye on the Latest Section 16 Developments”

Tune in tomorrow for the webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.

– Broc Romanek